Every year since 2012, AIR has published a report on extreme event risk from a global perspective. This global risk profile is assessed by way of AIR’s global industry exceedance probability (EP) curve, which puts into context years with high insured losses such as 2011 and 2017.
The report provides both global insured and insurable loss estimates based on AIR’s global suite of models; the difference between covered (insured) and eligible (insurable) exposures—the protection gap—suggests areas of potential profitable growth in markets already identified as vulnerable to catastrophic events.
AIR’s report for 2022 estimated that the global modeled insured average annual loss from catastrophes worldwide is nearly USD 100 billion. Insurable losses (representing all exposures eligible for insurance coverage, regardless of whether they are actually insured or not) are twice as high as this figure. Economic losses (including insurable losses and noninsurable losses, such as infrastructure damage and lost economic productivity) are more than four times as high.
With climate change and continued development in disaster-prone areas, losses from catastrophes will only increase. For regions and perils covered by catastrophe models, the protection gap represents potential business growth opportunities for the insurance industry to offer essential protection to vulnerable home- and business-owners. But companies need a comprehensive view of catastrophe risk on a global scale to:
- Ensure solvency in high-loss years
- Avoid underestimating risk by focusing only on peak perils and regions
- Identify business opportunities in underserved markets
- Offer vital protection and close the insurance gap
Because catastrophe risk can threaten a company’s financial well-being, companies operating on a world stage need to understand their risk across global exposure to ensure they have sufficient capital to survive years of very high loss. Understanding—and owning—this risk requires knowing both the likelihood of high-loss years and the diversity of events that could produce such losses. In addition, companies with global exposures and an expanding global reach should prepare for the possibility that future catastrophes will produce losses exceeding any historical amounts.
With the insight provided by AIR’s global suite of models, companies can pursue profitable expansion in a market that is more connected, and amid regulatory environments that are increasingly rigorous. These holistic analytics can give insurers and reinsurers greater confidence that the risk they’ve assumed is risk they can afford to take.
Get an overview of this topic from the infographic “Measuring the Global Protection Gap”
